Marketer of the Year: On Target

Target corp. is a promsicuous client, with an in-house advertising department and more than a half-dozen agencies handling assignments on a project basis.

But after six years working on print ads, Dave Peterson, creative director and founder of Minneapolis boutique Peterson Milla Hooks, was given a plum: Come up with a branding campaign defining Target's DNA

R. Peterson long thought the simple red Target logo had a look reminiscent of an early Gucci or Chanel logo. "It was fun, designery and fashioney," he says. "It was a byproduct of the times we are living in."

The resulting 1999 spots featured "Bull's-Eye World," a funky retro pop culture place where happy blondes serve red target-shaped molded Jell-O and dance in a Target logo wallpapered room wearing a Target logo patterned outfit, all to Petula Clark's "Sign of the Times."

With that, Target hit the bull's-eye. The upscale discounter has established its logo nationally as an advertising icon in a class with those of McDonald's arches and Nike's swoosh.

For that campaign, and for its finely honed marketing position as purveyor of cheap chic, Target Corp. is Advertising Age's Marketer of the Year for 2000. Target is the 30th marketer to be honored since Ad Age began the award in 1971. It's the fourth retailer on the list, following Amazon.com in 1999, The Gap in 1997, Wal-Mart Stores in 1991 and Kmart Corp. in 1976.

REINVENTING THE DISCOUNT CONCEPT

Target, dubbed by admirers in faux French as "Tar-zhay," has "reinvented the whole discount-store concept," says George Strachan, VP-research, Goldman Sachs. Target is managing to stay on top as it competes in a host of categories, bumping against everyone from Wal-Mart to The Gap to Staples to Bed, Bath & Beyond.

Ellis Verdi, president of DeVito/Verdi, New York, whose clients have included Office Depot and Circuit City Stores, says Target is the envy of most marketers in the turbulent retail sector. Target has "been able to carve out the ultimate retail positioning with both a perception of having the highest quality products and at the same time, a perception of being a low price leader."

GOODBY A FAN

One Target customer, Jeff Goodby, co-chairman of Goodby, Silverstein & Partners, San Francisco, says the store's advertising is on target with what the store delivers.

"It's a memorable, clean graphic that represents the place and tells a truth about them," says Mr. Goodby, who frequents Target when he's shooting commercials in Los Angeles and needs to pick up a sweatshirt or pair of shorts, "potato chips and junk food you need for the week."

The sign of the times not only fits but appears to be working at the cash register as well. Target, with $35.3 billion in sales over the last 12 months, expects to leapfrog soon over No. 2 Kmart Corp. in terms of sales to become the second-largest discount chain in the nation behind Wal-Mart. For the first 11 months of the year, Kmart's sales were $28.3 billion, compared with Target's sales of $27.5 billion.

Target reported ad expenditures in 1999 of $791 million. It had $424 million in measured spending, according to Competitive Media Reporting.

SALUTE TO NAME

In a salute to the positioning and strength of its core brand, which now provides an estimated 80 percent of the corporation's sales and profits, Dayton Hudson Corp. at the start of the new millennium officially changed its name to Target Corp.

The corporation operates Target Stores; Mervyn's California, a 267-store chain with erratic results on its sales of national brands and private-label products for the middle market, and a department store unit that includes Dayton's, Marshall Field's and Hudson's. The department stores are struggling as most traditional retailers are these days, but Target Corp. strives to promote the brands in each locale as "the best store in town."

It was from Dayton Co.'s roots as a traditional, high fashion department store that Target began in 1962 as its discount division. Rivals Wal-Mart and Kmart also opened that year, products of five-and-dime retailers.

"The fact [Target was] spawned by a department store makes a big difference. They don't have a 5-and-dime mentality," says Walter Loeb, president, Loeb Associates, a consultancy that publishes the Loeb Retail Letter. "Every associate is a team player and they treat customers as guests.

"But don't let the chic advertising in Vogue and high-brow image fool you," Mr. Loeb notes. "They show that they're highfalutin, but they're also down and dirty."

ULRICH LEADS WAY

The chain made its biggest strides under Bob Ulrich, who started as a merchandising trainee at Dayton's in 1967 and rose through the corporate ranks. He became president of Target Stores in 1984, then chairman-CEO in 1987. He took his current post of chairman-CEO of Dayton Hudson Corp. (now Target Corp.) in 1994.

Mr. Ulrich, in remarks to investors this fall, credited the company's success to discipline in operations, strategies and finances. "Our consistency of execution . . . gives us the flexibility to be creative in our merchandising, our marketing and our brand identity," he told investors.

That creativity is centered in the stores' marketing department, according to John E. Pellegrene, exec VP-marketing for Target Corp. In many department stores, the merchants often were given the lead on product decisions, with marketers brought in at the end of the process to advertise available merchandise.

Mr. Pellegrene says at Target, it's the other way around. "We don't look at advertising as purely paper and film," he says. "We are a dimensional advertising department. We are not a department that simply deals in conventional media. We deal in marketing programs that will also bring millions of dollars into the company in perpetuity."

"We are the largest advertising registry in the world," he claims, surpassing Federated Department Stores' Macy's a year and a half ago. "When other people said, 'Will people buy wedding gifts at discount stores,' my feeling was no, they wouldn't buy them at discount stores, but they would buy them at Target," he says. The Lullaby Club, an extension of the bridal registry, was a natural follow-up.

MONUMENTAL DECISION

Another substantial income stream coming from the marketing department was a by-product of a cause-related marketing project, the restoration of the Washington Monument.

Architect Michael Graves designed a translucent sheath to cover the unsightly scaffolding during the restoration, which Target backed as a corporate sponsor. The association with the architect led to a deal through which he launched in 1999 a line of high fashion Target private-label products, such as tea kettles and toasters.

"It came out of marketing, and it migrated to merchandising. And that's the way we do a lot of things," says Mr. Pellegrene. The executive worked in package-goods and automotive-marketing before he joined the department-store company 31 years ago. He's been with the Target division for 11 years.

EDUCATION PROGRAM

Another marketing department success, he says, was the Target Take Care of Education program through which credit-card holders could designate a school of their choice to receive a donation of 1 percent of their Target charge card purchases. Not only has the program blossomed to include 17 million cardholders, but those using the school program spend four times as much as regular Target customers.

"You have to realize that the advertising department invented a program that is not just cause marketing," says Mr. Pellegrene. "It is the design of a business. And that's what these people have been doing, as well as doing award-winning ads that will win all the regular conventional advertising awards."

Target logo wear, resulting from the "Sign of the Times" commercial, also is doing well. The dog with the bull's-eye logo is the most selected card among the gift certificates, says Mr. Pellegrene. "We're not pushing that - that just happened."

Target also has figured out how to use its co-op advertising dollars to exploit its brand. The so-called "pop art" campaign, which broke this spring, used multiple images of a Tide box to show off a pair of Capri pants worn along a beach. Other spots showed Tums and a woman wearing a two piece Target outfit. "It was the first time I've ever run an advertising campaign where I've had a waiting list in that [Procter & Gamble Co.] and PepsiCo want to be part of it. We're very careful; we actually turned down money and vendors," Mr. Pellegrene says.

COCA-COLA ON BOARD

The campaign resumes this spring, with the title "Color My World," and features for the first time Coke as part of a "red"-themed campaign launching the red line from the California sportswear company, Mossimo. It is a beach and surf line for young men and junior women. A Mossimo black line will feature men's and women's clothing and shoes.

Another branding effort is expected next year, as well as a campaign dubbed "Spotted at Target," which will feature the work of Mossimo and Mr. Graves and reflect their influence on contemporary art and culture.

"They are product spots, but they function as brand builders," says Mr. Peterson.

Music tie-ins also will be promoted, just as this holiday season has been centered on Tina Turner, with Target sponsoring a TV show of her first and last concert tour, and a CD available only at Target Stores.

One of the store's most important branding concepts came not from the marketing department, but from the mouth of the customer, Mr. Pellegrene says.

"Tar-zhay, that is a moniker the customer gave Target. It isn't something Target invented," he says. "If you had to do our entire mission statement, that would be it. If you had to say to a buyer, judge your merchandising against that name, Tar-zhay, you would be getting where Target is."

Still, some of Target's successes are due to luck, he concedes. In terms of media, for example, "We try to sponsor the hottest things out there in the media we can sponsor. Sometimes it's luck," he says.

'SURVIVOR STAR'

Target was a major sponsor of the CBS-TV summer ratings phenomenon "Survivor." As part of its ties to the show, it dropped a parachute with the Target bull's-eye on the island, where it was used as a shelter and seen every week.

Advertising aside, perhaps one of the biggest underlying factors in the Tar-zhay phenomenon is the "massification" of fashion, the shortened length of time it takes for trends to move from designer runway to discount rack. In the past, new looks took months to copy and move down from the higher priced department stores into discount channels.

"Today, customers at all price points can look fashionable quite affordably," concluded a Goldman Sachs shopping study conducted this fall at Roosevelt Field Mall in New York. There, it found Python-patterned pantsuits at Nordstrom's for $447, while a similar-looking outfit at Target had a $41.98 price tag. Nordstrom was selling animal skin cowboy hats for $28, but Target had very similar snake, zebra and other skin styles and colors for $14.99.

Target also has developed a strong line of private-label products, which enhance its fashion edge. Target has developed almost a dozen lines of private-label brands bearing trendy brand names, among them Sanrio's Hello Kitty toys and clothing, Kitchen Essentials from Calphalon, Martex linens and Robert Abbey lamps.

LITTLE OVERLAP

Those products, in addition to providing better profitability, also help Target fight the competition. For example, Mr. Strachan notes only 30 percent of Target's products overlap with Wal-Mart products.

Beyond the fashion front, Target is making "guest services" a selling point. Ever since Nordstrom raised the bar on customer service, most department stores have enacted lenient return policies.

But Target has gone extra lengths to ensure happy returns for the holiday season. Target provides its guests with free receipt holders at registers; it will look up receipts for purchases made with most major credit cards.

WEB GAINS

Target also has diligently integrated its clicks and bricks. Starting with the extension of its Club Wedd gift registry to the Web, Target has increased the number of items available from about 2,000 at the end of 1999 to more than 15,000 currently. New technologies allow customers to look at weekly circulars by region and provide real-time inventory, so customers will know whether the items they want are in stock.

Target also has realized the value of the Web as an extension of its brand to locales where no stores exist. This holiday, for example, Target.com kicked off an aggressive promotion in Manhattan, offering coffee, popcorn and other unexpected treats - including free holiday shipping from the Web site - to consumers. This could warm up shoppers for a possible new store as Target investigates real estate in the city.

Beyond its online sales, Target is developing a customer relationship management system within its corporate structure. A database of customers is under development for all Target Corp. stores.

As for Target's sibling retailers, Mervyn's and the department stores unit, corporate execs repeatedly have indicated they will stick with their heritage. "I haven't seen any inclination on the part of management to sell," says Goldman Sachs' Mr. Strachan. "At this point, it doesn't matter."

FICKLE, FAST AND FURIOUS

Still,
Target, like all players in the fickle, fast and furious retail trade, is facing challenges. This spring, when sales at Target division stores open more than one year began to slow, critics wondered whether the discounter had gone so far upscale that it was alienating traditional discount shoppers.

Mr. Ulrich, however, has told investors Target keeps its total assortment priced competitively with similar items at Wal-Mart and Kmart as well as at category killers such as Best Buy and Toys "R" Us. At the same time, Target also is going to up-market its offerings and product prices to keep pace with specialty and department stores. Still, when Target added a $199 set of Calphalon to the cookware section, it kept a $19.99 Mirro cookware set on the shelves, he notes.

Target also is facing challenges in the apparel aisles, representing 25 percent of the store's total sales. Target is using the designer name strategy, testing new brands such as Nikki Taylor by Liz Claiborne.

FORMAT CONCERNS

Wall Street has expressed concerns over the next Target format challenge - the rollout of 200 SuperTarget stores over the next 10 years.

The larger stores, like Wal-Mart's Supercenters, will include grocery stores as a way to win repeat visits. An attempt to show off Tarzhay's take on gourmet from Starbucks to sushi, the new stores have fixtures analysts view as expensive, service-intensive departments and reliance on third-party distributors.

Other retail experts, such as Mr. Loeb, wonder when Target will take the plunge beyond U.S. borders. "Ultimately, this company has to go beyond the borders and internationalize," he says.

Mr. Ulrich has indicated no interest in international expansion, noting, "It is still very hard to get profitable returns once you get outside of North America, as Wal-Mart is finding out."

But that's not all. Almost every retailer today, from long-time player Sears, Roebuck & Co. to rising stars Kohl's Department Stores and specialty stores such as The Gap, has its sights set one place: on Target.